Lower Open Leads To a Rally...

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Stock Market Trends:

- ETF Positions indicated as Green are Long
ETF positions and those indicated as Red are
short positions.

- The State of the stock market is used to determine how you should trade.
A trending market can ignore support and resistance levels and maintain its
direction longer than most traders think it will.

- The BIAS is used to determine how aggressive or defensive you should be
with an ETF position. If the BIAS is Bullish but the stock market is in a Trading
state, you might enter a short trade to take advantage of a reversal off of
resistance. The BIAS tells you to exit that ETF trade on "weaker" signals than
you might otherwise trade on as the stock market is predisposed to move in
the direction of BIAS.

- At Risk is generally neutral represented by "-". When it is "Bullish" or "Bearish" it
warns of a potential change in the BIAS.

- The Moving Averages are noted as they are important signposts used by the
Chartists community in determining the relative health of the markets.

Best ETFs to buy now (current positions):

Long DIA at $161.48 as of December 19, 2013
Long QQQ at $85.99 as of December 19, 2013
Long SPY at $181.19 as of December 19, 2013

Value Portfolio:

Long SDRL at $33.90 on June 15, 2012 (Shares were put to us when options expired.
We were paid $1.10 per share when we sold those options and bought shares for
$35.00 each). We have collected dividends: March 5, 2014 $0.98, December 3,
2013 $0.95, September 5, 2013 $0.91, June 5, 2013 $0.88, $1.70 Dec 4, 2012,
$0.84 Sep 4, 2012. Total = $5.28 in dividend payments.
Short FXE at $124.19 on August 24, 2012
Long UUP at $22.43 on August 24, 2012
Short FXE at $134.48 on October 4, 2013
Long SDRL at $35.43 on Feb 18, 2014
Long SDRL at $33.50 on March 21, 2014 (Shares were put to us when options expired.
We were paid $1.50 per share when we sold those options and bought the shares
for $35.00 each.

Equities saw a gap down open with buying coming in immediately, strong for
the first fifteen minutes then modestly the rest of the morning. The lunch
hour saw some modest selling but buyers stepped up yet again in the final hour
to ensure equity indexes had positive closes. In fact, the Dow only closed
up one tenth of one percent while the other major indexes posted stronger fractional
closes. This left the Dow still below its 20-Day Moving Average (DMA) while
both the S&P-500 and NASDAQ-100 are above their 20-, 50-, and 200-DMAs.
All three are in trading states as are all the other equity indexes we regularly
report on with the exception of the Dow Jones Transports (IYT 141.69
+1.14) which is in an uptrend state and sits above its 20-, 50-, and 200-DMAs.
The Semiconductor Index (SOX 582.05 +6.04) added more than one percent
and now sits above its 20-, 50-, and 200-DMAs. The The Russell-2000 (IWM
110.75 +1.18) added more than one percent as it tickled the underside of its
200-DMA before closing below that important level. It also remains below its
20- and 50-DMAs. It maintains a BEARISH BIAS. The Bank Index (KBE 31.47
+0.44) added a gain or more than one percent and the Regional Bank Index (KRE
37.90 +0.60) added most of two percent. Both remain below their respective
20-, 50-, and 200-DMAs but shifted to trading states and maintain a BEARISH
BIAS. The Finance Sector ETF (XLF 21.86 +0.11) added a fractional gain
closing just under its 20-DMA, still under its 50-DMA and above its 200-DMA. Longer
Term Bonds (TLT 112.70 -0.84) appears to have topped, which is what we
suggested two sessions ago. It saw a gap up open result in selling through
the session and it shifted to a trading state. It still closed above its 20-,
50-, and 200-DMAs. Trading volume was very light with 584M shares traded
on the NYSE. Trading volume on the NASDAQ was also very light with 1.581B shares
traded.

There were no economic reports of interest released and none are schedule
until Wednesday.

We are watching gold for a potential reversal in the Gold Miners Index (GDX
23.41 -0.01) was essentially unchanged as was the price of Gold (GLD
124.58 +0.08). Both closed below their 20-, 50-, and 200-DMAs.

Apple (AAPL 604.59 +7.08) again added more than one percent. AAPL constitutes
about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500.

Seadrill Limited (SDRL 35.53 +0.23) added a strong fractional gain.
It remains above the support of its 20- and 50-DMAs with the 20-DMA crossing
up through the 50-DMA last Thursday. We sold March 2014 $35.00 put contracts
for $150 at the open on Feb 18th and bought shares at $35.43. The stock is
now trading ex-dividend for $0.98. The shares were put to us at $35.00 less
the $1.50 per share we were paid for the puts, so we have an effective price
of $33.50.

The U.S. dollar was unchanged while the Euro rose less than one tenth of one
percent.

The yield for the 10-year treasuries rose three basis points to close at 2.55.
The price of a barrel of crude oil rose fifty-nine cents to close at $102.61.

The implied volatility for the S&P-500 (VIX 12.42 -0.02) was essentially
unchanged remaining well below its 200-DMA. The implied volatility for the
NASDAQ-100 (VXN 15.10 -0.15) slipped one percent and remains below its 200-DMA.
With implied volatility closing below the 200-DMAs, complacency is high. We
will be watching for the next spike in volatility but it has not yet been signaled.

Market internals were bullish with advancers leading decliners 2:1 on both
the NYSE and the NASDAQ. Up volume led down volume 3:2 on the NYSE and by 3:1
on the NASDAQ. The index put/call ratio rose +0.26 to close at 1.15.
The equity put/call ratio fell -0.14 to close at 0.54.

Conclusion/Commentary

Monday saw the expected continued rise. All three canaries (IWM, KBE, KRE)
moved up aggressively as did all the leading indexes. This market has been
very choppy of late and has not been able to consistently move in the same
direction for three days in a row. While we still believe the bulls will eventually
win out, we are not confident, yet, that Tuesday will be a bullish day. The
Russell-2000 and the two bank indexes still closed below their respective 200-DMAs
but the Russell-2000 is very close. All three shifted to trading states so
the bears have lost the downside momentum. We will maintain our long positions
for now.

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